2018 1.2 The Sarbanes - Oxley Act of 2002 (SOX)

Each member of the issuer's AUDIT COMMITTEE must be an INDEPENDENT MEMBER of the board of director's

1. To be independent, a director must not be affiliated with, or receive any compensation (other than for service on the board) from, the issuer. 2. The audit committee MUST be comprised of AT LEAST THREE fully independent members.

An annual report from MANAGEMENT must contain the following:

1. A statement that mgmt has taken responsibility for establishing & maintaining an adequate system of internal control over financial reporting. 2. The name of the internal control model, if any, used to control system (COSO's internal control - integrated framework is the most widely used model in the US) 3. An assessment of whether internal control over financial reporting is effective 4. A statement that an independent public accounting firm that is registered with PCAOB also has assessed the system

Penalties are:

1. ALTERING DOCUMENTS could result in a fine, imprisonment of up to 20 yrs, or both. 2. RETALIATING AGAINST INFORMANTS (whistleblowers) could result in a fine, imprisonment of up to 10 yrs, or both. 3. Sep penalties are provided for unknowingly and knowingly CERTIFYING NONCOMPLYING FILINGS. 1. UNKNOWINGLY certifying filing that do not meet the requirements of SOX can result in fines of up to 1 million or up to 10 yrs imprisonment. 2. KNOWINGLY certifying filing that do not meet the requirements of SOX can result in fines of up to 5 million or up to 20 yrs imprisonment

At least ONE member of the AUDIT COMMITTEE MUST be a FINANCIAL EXPERT.

1. An issuer MUST DISCLOSE whether its audit committee has at least one financial expert. 2. If the AC lacks a financial expert, the issuer must disclose the reasons.

To be considered a financial expert, the director must have:

1. An understanding of GAAP and financial statements 2. Experience in: 1. The preparation or audit of financial statements of generally comparable issuers 2. The application of GAAP in connection with the accounting for estimated, accruals, and reserves. 3. Experience with internal accounting controls 4. An understanding of audit committee functions.

If an issuer is required to prepare an accounting restatement bc of misconduct, the issuer's CEO and CFO must forfeit:

1. Any bonus or other incentive-based compensation received from the issuer during the previous 12 months AND 2. Any profits received from the sale of stock of the issuer during the previous 12 months.

The Audit Committee must be directly responsible for:

1. Appointing 2. Compensating 3. And Overseeing the work of the independent auditor 4. The independent auditor must report directly to the audit committee, not to management

A public accounting firm is PROHIBITED from performing certain non-audit services for an audit client. Like:

1. Bookkeeping 2. Financial information systems design & implementation. 3. Appraisal or valuation services, fairness opinions, or contribution-in-kind reports 4. Actuarial services 5. Internal audit outsourcing services 6. Management functions of Human Resources 7. Broker-dealer, investment advisor, or investment banking services 8. Legal services and expert services unrelated to the audit.

Issuers are required to disclose whether or not they have adopted a code of ethics for SENIOR FINANCIAL OFFICERS

1. If they have not adopted a code of ethics for senior financial officers, then they must also disclose the reasons why.

The PCAOB

1. Issues auditing and related standards 2. Inspects and investigates accounting firms 3. Enforces compliance with its rules, professional standards, SOX, and relevant securities laws.

The Audit Committee must also establish procedures for:

1. The receipt, retention, and treatment of complaints received regarding accounting, internal control, or auditing matters 2. The confidential, anonymous submission of employees concern's regarding questionable accounting or auditing matters

In every annual or quarterly filing with the SEC, the CEO and CFO must certify the following:

1. They have reviewed the report 2. To the best of their knowledge, the financial statement are free of material misstatements 3. They are responsible for the system of internal control and have evaluated its effectiveness 4. They have informed informed the audit committee and the independent auditors of all significant control deficiencies & any fraud, whether or not material. 5. Significant changes were (or were not) made in internal controls, including corrective actions.

Issuer's are generally prohibited from:

Extending PERSONAL LOANS to any director or executive officer. Certain exceptions apply (home improvement loans and consumer credit)

The PCAOB was established to oversee the audits of:

Public Companies

PCAOB stands for?

Public Company Accounting Oversight Board.

Public Accounting Firms that act as independent auditors must:

Register with the PCAOB

For certain violations, the SEC has the authority to prohibit persons from:

Serving as a director or officer of any issuer.

A public accounting firm may perform PERMITTED non-audit services, like:

Tax services, for an audit client if those services are pre-approved by the AUDIT COMMITTEE.